CEO Purpose Report 2022

Leading for the long term

The COVID-19 pandemic precipitated a re-examination of purpose for businesses and individuals worldwide.

Issues that had been progressing at a steady pace pre-pandemic started to intensify and accelerate in boardroom discussions: around the future of work; digital transformation; sustainability; diversity, equity and inclusion (DEI); and more.

Across these issues, our survey revealed an overall emerging narrative, away from shareholder value and profit to a longer-term view that comprises a wider range of stakeholders. There is a clear shift in priorities from shareholders (37%) to customers (61%) and employees (57%). This view is prevalent across countries, company types, size of organization and the length of service of CEOs.

The pandemic galvanized senior leadership, reinforcing the notion that CEOs need to believe in their organization's purpose to ensure that their companies thrive. Misalignment can lead CEOs to believe that they are at an impasse, which can lead to disillusionment. However, it can also be a driving force for proactive change, to build common ground throughout an organization, and gain momentum.

Our research shows that there is still work to be done. Most CEOs are prioritizing efforts in long-term value creation (73%) and company purpose (62%) as the pandemic winds down from its height – the latter rising from almost half (34%) in the previous year. But figures also show that using technology to improve processes and offerings is the top priority for CEOs when it comes to creating long-term value in 2022 (consistent with results from the previous year). While upgrading technology can help to create mid-term value, its evolving nature means that CEOs seeking long-term purpose will have to expand their criteria for value creation.

Priorities that have been de-escalated include the focus on efficiency to reduce costs (down from 38% in 2021 to 28% in 2022), as well as access to capital (33% in 2022 versus 44% in the previous year). It seems that companies might be scaling back to what matters, rather than focusing on priorities that are contingent on business continuity and market strength.

Talent, however, remains a top requirement of long-term value creation. 40% of CEOs indicate that talent is a top future challenge – one that they are keen to solve. As individual priorities shift, companies are finding that they are increasingly required to adapt and devise creative solutions to attract top talent.

From value to values

A critical insight from our survey is the paradigm shift from shareholder “value” to purpose-led “values.” Businesses are seeking a new equilibrium between generating value for shareholders and leading with purpose. Although “value” is still a key business goal, it is now joined by crucial elements which are fundamental to nurturing companies' longevity, and which help them to drive “value” in the long run. The chief aspect that connects these elements is purpose.

Purpose has always been integral to business, but it came into its own at an unprecedented scale during the COVID-19 pandemic. The exponential degree of uncertainty which businesses – and the world at large – were facing meant that businesses had to rethink what mattered. Business ventures that were perceived to have profiteered from a global healthcare crisis were publicly shamed. In New York City, the Department of Consumer and Worker Protection reported that it had placed 3000 retail outlets on notice over price gouging. Some third-party merchants on Amazon were fined by the New York Attorney General for price gouging hand sanitizer, and US senators and attorneys general urged the business to take more action to discourage profiteering.

On the flip side, purpose-conscious companies have embraced stakeholder capitalism – seeking to identify the needs of different groups of stakeholders – clients, employees, suppliers, local communities and more – and to align their own organizational purpose to these. For example, over 70 companies – including IBM, Nestlé and Unilever – have committed to using Stakeholder Capitalism Metrics which were established by the World Economic Forum in association with leading accountancy firms to create a set of universal ESG disclosure rules.

This shift is driven from the top down, with 64% of CEOs agreeing that it is their responsibility to define purpose for their organizations. The role of CEO is quickly incorporating that of “chief values officer,” with leaders the primary spokespeople for their organizations on social and political issues.

Although CEOs are architects of purpose, determining the values that feed into and from this requires input from various sources. These include employees, who are a barometer of political, social and cultural priorities, as well as other stakeholders, both internal and external. Purpose is a shared responsibility, and driving values starts from within an organization, creating a ripple effect outwards.

Purpose has always mattered to business. There are two critical challenges in this purpose-driven age, where individuals have more access to information than ever before, as well as a plethora of platforms on which to make themselves heard. One is pinpointing purpose that matters, by determining what this means to different stakeholders. The other is incorporating this purpose into everything that a company does, in order to attract, engage and, ultimately, appease a wider stakeholder base.

In theory, CEOs appear to be committed to the emphasis on stakeholderism (as opposed to shareholderism). A majority (58%) of CEOs believe that having a clear purpose, ambition and strategy creates long-term value; our survey finds that prioritizing long-term value creation is key to most industries, and among most type of companies. When asked about the connection between their purpose as an individual and their organization's purpose, 73% of CEOs said that it influenced more than 50% of their decision-making. Yet the emphasis on stakeholderism is still somewhat struggling to translate into reality, where the plurality of stakeholders' needs still requires balancing against shareholders' wishes. Purpose is a practical solution for reconciling the two.

Looking back on the last five years, many CEOs (42%) say that they have created most value for their organizations by using technology to improve offerings and processes. But purpose (58%) narrowly edges out good products and services (54%) and cutting-edge technology (54%) when it comes to creating long-term value. This dissonance suggests that it is easier for businesses to continue to prioritize shareholderism for short-term profit when what they must do is persevere and put in the hard work of developing purpose to deliver long-term gains.

Purpose-washing

Governance guidelines, corporate bylaws, proxy statements, director pay policies, and responses to shareholder proposals still prioritize shareholder value – demonstrating purpose-washing at its most fundamental level. Yet, people are highly aware of “purpose-washing” initiatives and are accustomed to scrutinizing the authenticity of companies' claims.

The threshold of public opinion for exaggerated purpose claims is low, and companies that are caught out face repercussions on multiple fronts: to their brand reputation and customer loyalty, and overall, to the loss of trust. Purpose is an intrinsic aspect of trust, and once it is lost, repairing the damage is an uphill battle.

Because of its significance to organizations, purpose can no longer be constrained by Corporate Social Responsibility (CSR) initiatives or advertising campaigns.

The key role of purpose is shifting from advertising, branding and public relations, with only 23% of CEOs believing that its main function is to create advertising campaigns (down from 41% in 2021). Campaigns support purpose, not the other way around. And almost a third of CEOs now believe that the main role of purpose is to guide sustainability activities – a leap from just 9% in 2021. These insights help to substantiate the trend we are seeing of purpose being regarded as a mechanism for business longevity.

Practical steps: start with a statement

The first step to leading a purpose-driven business is to have a statement of purpose that matters. 83% of CEOs we surveyed already have purpose statements or want to create one for their organization; 55% are in the latter category. It is a start, but all businesses should have such statements as a default, to enable them to establish long-term value. These statements need to be data-driven, achievable and measurable. They also need to be reassessed periodically, to ensure their continued relevance to evolving trends, shifting industry landscapes, and general political, social and cultural changes.

For a purpose statement to be useful, companies also need to be able to evaluate their success. Purpose is closely connected to sales and growth, with the majority of CEOs surveyed using these to measure performance against purpose. Other metrics can include brand value and reputation, employee engagement, and innovation, as well as more granular environmental, social and corporate governance (ESG) and DEI metrics.

Purpose is aspirational, as highlighted by Tiger Tyagarajan, CEO of Genpact. It starts with intentions. But intentions do not create long-term value. Purpose is also a process. Businesses need to proactively plan for purpose that matters. To do this, they need to develop realistic purpose statements that will reinforce their activities, have robust metrics in place to stay on course, and systematically reassess their purpose, to ensure their longevity within evolving markets.

Every business is part of a rich and interconnected ecosystem, yet today many act as if they were islands. In doing so, they often neglect the interdependencies of their network and their potential to influence change. Recent crises have impacted every business across the globe and highlighted fault lines in our fragile systems. At the same time, our response to these same crises has shown our ability to collectively innovate, work globally at speed and scale, and move from models of competitive advantage to radical collaboration. We need to nurture healthy business ecosystems that are resilient and adaptive in the face of increasing uncertainty.

As outlined in the introduction, we are seeing businesses accelerating their efforts to deliver long-term value (73%), ESG (72%), and company purpose (62%) despite the impact of the global pandemic. 2022 also sees a majority of CEOs (55%) accelerating their efforts related to corporate governance, up from 36% in the previous year.

We are at a unique moment in history, where the focus is on business leaders to reimagine “business as usual” and act as stewards to shape a more sustainable future. This starts with addressing what it means for a business to thrive and think beyond the bottom line. A healthy business ecosystem is one that benefits all of its stakeholders, where value is not only extracted, but also generated and given back. It provides mutual benefit to all parties involved. 'Investors, employees and clients live in an ecosystem and breathe the air of the community,' says Tiger Tyagarajan, CEO of Genpact. 'I don't think you can create a vacuum that says I'm separate from the community.'

Supercharging value through collaboration

Harnessing a healthy ecosystem has the potential to supercharge collaboration and the value a business can deliver. It allows business to think beyond its operational boundaries and appreciate where it can make the greatest impact. Defining a purpose that seeks to solve a meaningful challenge gives businesses a powerful strategic lens. A lens to understand their current ecosystem and identify where there is a need to foster new relationships and unlock potential for progress.

Ecosystems are a catalyst for innovation; made up of diverse stakeholders, resources and perspectives. Tapping into the collective intelligence of a business ecosystem enables companies to bring new thinking to problem-solving. Understanding the mega-trends impacting your broader ecosystem will encourage innovation that is relevant to the needs of a rapidly evolving market. And a connected ecosystem enables business to cascade innovation and mobilize action.

Embracing a healthy ecosystem is more than an innovation or stakeholder engagement strategy. For many, it is critical to the boardroom agenda. More than a third of CEOs believe that a key driver of purpose in organizations is influencing potential partners and suppliers to align with the organization's values. Purpose is considered a manifesto, with 30% of CEOs planning to prioritize building a stronger partner ecosystem for value creation in the next five years.

Taking a holistic approach

Nurturing a healthy ecosystem requires strategic and holistic thinking, beyond the roll call of partners and clients or a stakeholder materiality matrix. Businesses need to understand themselves in the context of all stakeholders. More importantly, they need to understand how their purpose is relevant across their ecosystem to inform decision-making and amplify their ambitions.

61% of CEOs view customers as their most important stakeholders for long-term value creation. There is a need for business to recognize, respect and align organizational purpose to that of clients – today and those of the future. There is also an opportunity to bring clients on the purpose journey so that they can amplify business messages and advocate for the causes it supports. By innovating to deliver sustainable goods and services, businesses can increase the choice architecture available to consumers and influence more positive consumption behaviors.

Historically business has run the risk of considering its supply chain as separate from its core operations and scope of business responsibility. The opposite is also true – supply chains are the lifeblood of a business. Businesses cannot thrive without a healthy and resilient supply chain. Moreover, for many businesses, their greatest impact lies in their supply chain, especially for B2B companies. Businesses who work with suppliers to align to their purpose and sustainability commitments can work collaboratively to problem-solve.

Nearly a quarter of business leaders see connecting to local communities as the main role of purpose in organizations and a quarter of CEOs identify that future generations are key stakeholders for creating and capturing value in the long run. A business ecosystem is made up of more than transactional relationships and its health will depend on the wellbeing of the communities and environment it is part of. Long-term value creation requires generating value across the business ecosystem as well as seeking to regenerate and restore parts of the ecosystem businesses have a negative impact on. Ecosystems also need to be considered in the context of future time horizons. Businesses who define their purpose to address the complex challenges of today are doing so to safeguard a more sustainable tomorrow and to act as stewards for future generations.

The COVID-19 pandemic kick-started a new level of workplace introspection, with the workforce contemplating essential questions about their personal and professional lives, as well as the intersection between the two. One of the consequences of this substantial mindset shift of work and life priorities was The Great Resignation, with professionals in their early fifties considering early retirement, and more workers actively choosing to quit jobs that barred working from home (or to switch to roles with hybrid working arrangements).

Misalignment between companies' and employees' values are not limited to personal preferences. Employees have also been increasingly bold in bringing companies to task for social issues. In 2020, Facebook employees staged a walkout in protest of what they deemed inadequate policing of posts on the platform by then-US President Donald Trump. Apple employees pushed back against the tech giant's return-to-office policies in 2021. And Netflix employees also staged a walkout in 2021, in protest of specific content deemed transphobic.

Talent is a priority in the employee era

Gone are the times when salary and benefits were the key determinants of jobseeker interest. Companies now contend with a range of factors related to personal, social, and cultural preferences – and sometimes political inclinations too. When asked how they measure organizational performance against purpose, sales and growth came out on top (37%). CEOs also ranked organizations' attractiveness as a place to work (27%), employee motivation (23%) and employee turnover (23%) as key factors.

The traditional model of employees complying to an organization's purpose at the risk of their own has been upended. Today, the latter influences the former, giving rise to a complex, hybrid model of corporate purpose.

This “new normal” in the job market – one that prioritizes employees' personal preferences and priorities – also means that purpose matters more so than ever, as organizations need to attract the best talent in order to maintain their competitive advantage. Employees are a key stakeholder in long-term value creation, and our survey showed that 29% of CEOs think CPOs have the responsibility to define the purpose of an organization, compared to 6% the year before.

CEOs are prioritizing employee engagement as businesses increasingly struggle to attract and retain talent. The ongoing battle for talent sees 52% of CEOs accelerating their efforts at employee engagement, compared to 41% the year before. Where we work has affected employee prioritization, shifting from workplace-incidental perks – for example, foosball tables, Beer Fridays and yoga classes – to less tangible forms of benefits – for example, the lack of a commute – simultaneously highlighting the growing importance of purpose and piling the pressure on it to deliver.

When it comes to realizing value creation priorities, CEOs are more concerned about attracting and retaining talent (40%) than access to capital (30%) and receiving pressure from stakeholders to prioritize short-term profit delivery (26%). From an operational standpoint, they are worried about effective resourcing. But this emerging trend is also another crumb in a long trail of evidence demonstrating senior leaders' shift to long-term priorities, as the battle for talent attraction and attrition intensifies.

Purpose drives sustainable outcomes

The time to argue the business case for sustainability is over with sustainability and ESG now sitting firmly on the boardroom agenda. With 193 countries signed up to deliver on the UN Sustainable Development Goals by 2030, this is the decade to deliver sustainable action before it is too late. Business is a powerful engine for change and we are seeing leaders recognize this with 30% of CEOs believing the key role of purpose is to guide sustainability activities. This is a promising proportion of leaders, but given the scale of change needed, we still have work to do.

We also found that 30% of CEOs believe that the primary function of purpose is to guide decision-making across their organizations. For organizations and leaders to step up to tackle global challenges, sustainability must be hardwired into core business strategy. A first step to achieving this is defining a purpose that clearly sets out a commitment to stewardship and is then activated through influencing and advocating for a sustainable future.

Bold ambition is not enough, stakeholders need confidence that businesses are delivering on their promises. At a time when business claims are being scrutinized for greenwashing it is imperative that businesses link their purpose and sustainability strategies to meaningful ESG KPIs and transparently measure and share their progress.

The top three ESG priorities that CEOs want their businesses to address by 2025 include developing a net-zero strategy (57%), focusing on the ESG factors of supply chain management (45%) and providing employee education and engagement on ESG issues (43%). These complex challenges should be a priority for every business and a thriving future depends on our ability to engage ecosystems and work in partnership. Coming in next is creating more sustainable goods and services (41%). The business world recognizes that its sustainability responsibility goes beyond addressing its operational footprint and must tackle its core offer in order to create long-term value.

Diversity, equity and inclusion (DEI)

Research has shown many commercial and organizational benefits of a diverse and inclusive workplace, including higher revenue growth, greater readiness to innovate, increased ability to recruit a diverse talent pool, and higher employee retention. Our data shows that nearly half of the CEOs surveyed agree with respondents saying that a diverse and inclusive workforce is to create long-term value, and with 40% of CEOs ranking the promotion of DEI as a key ESG priority to be addressed by 2025.

Having a diverse and inclusive workforce is only the first step in an organization's DEI journey. Businesses need to encourage and facilitate diverse perspectives from across the business, and across all levels, including senior leadership.

Overall, the current challenge is for CEOs to provide a foundation for workplaces that are truly diverse, equitable and inclusive – and this begins with purpose. This alignment of DEI with purpose also needs to cater for geographical differences. Global businesses are currently exporting one-size-fits-all DEI practices in acts of “DEI colonialism” from head offices to regions across the world, where culture, history and language – and, by association, DEI practices – differ. More work needs to be done to ensure that multinational organizations' purpose allows for granular distinctions to be made, so that DEI practices can be catered according to local customs.

Purpose, legacy, and environmental and social responsibility take precedence with CEOs, as do the relationships that drive them, both internally and externally. ‘Business has probably the most significant negative footprint on the planet and society today,’ says Mike Barry. ‘But it's also on the other side of the coin, the source of the solution that we need to build a better future.’